Sunday, March 31, 2013

A couple of years ago I was working as an expert in a fairly high profiled banking case - we won. During that same time Harvard law professor, Elizabeth Warren was making the news pushing for a consumer protection finance agency. She won despite spouting generalities and mistruths. I was predictable critical but the lawyer that I worked with most closely on the case told me that when he was in law school, Warren was his best professor. He called her brilliant - if ignorant with regard to business and economics. Much like it was reputed that Einstein gave up studying economics because it was too hard and studied physics instead, Warren opted for the law. You may also remember that Elizabeth Warren was the source of Obama's ill-fated "You didn't build that" comment. Well the same Elizabeth Warren is now in the senate having defeated Scott Brown in Massachusetts. She recently made headlines advocating a tripling of the minimum wage to $22 an hour, pooh-poohing Obama's proposal to raise it to $10.10. Virtually all economists regardless of stripe recognize such a proposal as foolish and ignorant. However, there are those who support such a move. First, one would think that the few workers who work at the minimum wage would of course realize that such a move would lead to their being unemployed but not to worry, the intellectuals who make much more than the minimum are all for it. Consider the following:
"Imagine the shock to the system $22.00 an hour would be to an employee. An immediate effect would be a reduction in two-income, lower income households. A single wage could afford the same lifestyle currently enjoyed by two people working three minimum wage jobs, even accounting for the inflationary reaction. This would relieve unemployment pressure across the board. In addition, it would create an improvement in the government budget, reducing pressure on programs such as Medicaid and Food Stamps, while also bringing in far higher tax revenue. It is a win-win scenario."
No I did not make this up. It is from addictinginfo.org. and is too stupid to comment on.

Friday, March 8, 2013

Many of the conservatives that I know believe that the welfare state exists to keep the poor beholden to the government. There is the image of the welfare queen, not working, eating bon bons, while pumping out kids. In return, the indigent is looked up as unmotivated – and in many cases lazy – and will vote to keep themselves on the dole. However, that raises several questions. The first is whether the poor vote in such numbers that would keep a party in power. Studying voter turnout it is not surprising that as income rises, so does voter turnout. In the lowest 20th percentile only 36 percent of eligible voters vote while in the next 20th percentile 52 percent vote. Voter turnout is also related to education. Those with no high school vote at 38 percent while college graduates vote at 79 percent. Race is also a factor with 56 percent of whites, 50 percent of blacks and only 27 percent of latinos voting. Age is a factor as is marital status. Therefore, when one looks at the likelihood of being poor – single, minority, uneducated – one is looking at the least likely group to vote. This is ironic since you would think that this would be the most likely group to vote if they are dependent upon the government’s largest. Indeed, since the bottom 50 percent of income earners in this country pay only 2.25 percent of federal income taxes, for the poorest of citizens it is a negative tax – that is they receive more in benefits than they pay in taxes. Again, more the reason to vote to keep the dole coming in. But the facts say that the poor are not so motivated that they go to the polls and vote. Rather voters are the nonpoor, the educated and mostly white (so far). When you look at party affiliation by income in 2012. For low income, 34 percent were democrats, 16 percent republican and 51 percent other. For middle income, democrats were 33 percent, republicans were 28 percent and independents were 40 percent. For high income where the folklore would think the republicans dominate, it was 31 percent republican, 31 percent democrat and 38 percent other. So one would have to conclude that nonpoor, educated whites have their reasons for keeping the welfare state intact. As a matter of fact, more welfare goes to the nonpoor than to the poor. We have education subsidies that have always been a disproportionate income transfer to the nonpoor from the nonpoor. The wealthy receive tax earmarks and deductions favored by both political parties. There are tax writeoffs on second homes, on yachts, business expenses, electric vehicle credits and huge agricultural subsidies for wealthy farmers. There are all sorts of business deductions and subsidies as well. In the bill signed by President Obama to avert the fiscal cliff there were accelerated tax write-offs for owners of NASCAR race tracks and a tax credit for companies operating in American Samoa. Distillers had a rum rebate. There were tax breaks for companies on indian reservations and more aid to the railroads. Certainly, in a capitalist laissez-faire economy none of this would happen because it distorts the market, limits competition and raises prices. In total the government spent $92 billion on corporate subsidies and about $52 billion on traditional social welfare programs. Of course as I have noted, for the social welfare recipients, it is a net gain. But what about for the nonpoor? Although I do not have the precise numbers, I suspect for the middle class who only get the mortgage deduction, there is a net income loss – although they might benefit from corporate welfare going to their employers. For the very wealthy who pay the bulk of the federal taxes, the arithmetic says that it is also a net loss. Regardless, welfare should be thought of in a broader sense than just some indictment of the poor. It is an indictment on us all, raising the cost of government, distorting markets and ultimately and ironically resulting in a net loss to society.

About Me

Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com